At first glance, SBI Life Insurance Co.’s performance lends an extra shine to the leadership position that it has recently acquired in the market. The fact that the stock has returned 17% on its listing price would mean investors were rather confident it would do well anyway.

For financial year 2017-18, the country’s largest life insurer reported a 30% growth in its new business premium, largely led by retail and a 34% growth in value of new business, while operating expenses declined. Profit after tax accordingly grew 20.5% to Rs1,150 crore for the year.

That may look impressive, but its internal metrics pale in front of competitors ICICI Prudential Life Insurance and HDFC Standard Life. All three insurers have the advantage of access to a wide network of the branches of their respective parents in addition to having commission-based agents and the online channel. While both ICICI Prudential Life and HDFC Life’s networks have pushed protection plans more, SBI Life hasn’t been able to do the same.

That an insurer of SBI Life’s size continues to maintain its rapid growth rate should not be ignored.

But it pays to look at where the growth is really coming from.

And here HDFC Standard Life wins hands down. SBI Life’s growth was led by its market-linked products, pushed by its agents given high commissions. Nearly 56% of the new business comes from unit linked plans (ULIP) and they have increased at a compound annual growth rate of 48%.

To be fair, it is understandable that ULIPs flew off the shelves considering the fact that they fall outside the purview of the long-term capital gains tax that the government imposed on equity investments. But what should worry investors is that the margin-friendly protection plans have a mere 6% share in new business. Granted that they have grown 23% for FY18, but protection plans’ growth over a three-year period is just 12%.

No wonder the insurer’s rivals reported a much better product mix and therefore a finer profitability outlook.

SBI Life is not able to push protection plans like its competitors and it will need to fix this to safeguard its profitability in future. Until then, the stock is unlikely to break significant ground from its current levels. Analysts have a ‘Buy’ rating on the stock even though, at current levels, it trades at a multiple of nearly four times its embedded value for FY18, richer than ICICI Prudential Life but far cheaper than HDFC Standard Life.

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